Accounting

Problem 13.37 (Overall rate of return on capital employed and post-tax return on net worth). A firm's capital employed is financed from different sources as follows: Rs./Lakhs Ordinary share capital 40 10% Preference share capital 10 Reserves 50 Long-term loans (12% interest) 80 Working capital loans (18% interest) 20 Total 200 The firm desires to provide a ploughback of profits in the business at 12% of the existing reserves after paying tax and dividend (12% dividend on ordinary shares). Calculate the overall rate on employed. Is there any difference in the amount of profit (and how much?) if it is to be provided for at 12% post-tax return on net worth? Consider the rate of corporate tax @ 55% + 5% surcharge thereon